Background
Summary of Council decision:
Two issues were investigated, both of which were Upheld.
Ad description
A radio ad, for an estate agent, which appeared in January 2012, included a voice-over that stated "The bank may be the safest place for your money, but Aldermartin Baines and Cuthbert estate agents would argue that it's not the most sensible place. If you have cash on deposit in the bank, you may be getting only half a per cent interest on your money and inflation will be working against you by eroding your savings. So, what's the alternative? Here at ABC Estates we'd like to suggest investing in property, good old bricks and mortar. Put your savings in a buy-to-let investment instead and you could generate a five per cent return on your investment, maybe more. Inflation would then actually work for you by eroding the value of your mortgage debt. Call Aldermartin Baines and Cuthbert estate agents ... for a full hand-holding service, to source suitable property and a pro-active letting and management service for both residential and commercial property across Greater London ...".
Issue
The ASA received three complaints from members of the public:
1. The complainants challenged whether the ad was misleading, because it did not make clear that there were risks associated with investments. Two of the complainants believed the ad misleadingly presented buy-to-let as a low risk investment.
2. Two of the complainants also challenged whether the advertiser was regulated by the Financial Services Authority (FSA) and, if not, whether the ad was suitable to be broadcast on radio.
Response
1. & 2. Aldermartin Baines & Cuthbert (ABC) said they offered many properties that reflected yields between 7 and 12% but had been guided to suggest a 5% yield, which was very conservative and definitely deliverable. They said they had agreed to that and the ad therefore received approval from the RACC. They had also been very careful to ensure the ad spoke in very general terms and did not guarantee any return or yield. They said the respondents to the ad were high net worth individuals with substantial cash deposits, who were anyway engaged in an investment programme, and decided to buy property via their agency. ABC also said that accountants and financial advisors had contacted them and commended them on the ad.
They did not accept that the ad misleadingly presented buy-to-let as a low risk investment. They said the ad did not mention "low risk" but instead focused on the issues of inflation eroding the value of money, either on deposit or as the debt of a mortgage. They said that was entirely obvious and would not be misleading to anyone. Nevertheless, the investments were low risk, because they gave an independent insurance backed rent guarantee. That meant that if a tenant stopped paying their rent the landlord would receive the rental fee via insurance as well as funds for a legal team to evict the tenant.
ABC said that if a deal was considered risky, banks would not lend on it particularly in the current economic climate. Banks would need to see independent research to show that the achievable rental income had at least 125% coverage in respect of the mortgage and if the income was less, they would not lend. They did not accept that the properties they would sell to an investor were any more risky than, for example, advertising for a razor blade where it would not be stated that consumers could cut themselves shaving. ABC said the average consumer would be able to see that without the need for further explanation.
The RACC said they did not regard property investment as being a financial product or service according to the spirit of the BCAP Code. Their view was the ad had been carefully worded so as not to misleadingly imply that investing in a buy-to-let property was low risk or risk-free. They considered it was clear from the opening line, "The bank may be the safest place for your money, but … it's not the most sensible place", which included the conditional language "… may …", that buying property might not be as safe as a savings account but was a viable, alternative option with the potential for bigger returns. They did not believe the ad presented buy-to-let as a preferable option to saving. They believed consumers in general were likely to understand that buying a property for rental income was neither low risk nor risk-free and that, as such, it was not necessary for the ad to specifically state that. The RACC said the language in the ad was such that it made clear the claims related to the advertiser's opinion on an alternative to savings and on the likely benefits of that alternative but did not imply there was no, or low, risk.
They said the ad was for buy-to-let property promoted as a buy-to-let 'investment'. They understood that while the FSA regulated buy-to-let mortgages, buy-to-let property was outside of its remit under the Financial Services and Markets Act 2000 (FSMA) because it was an 'investment' not felt to be in need of FSA regulation. They considered BCAP Code rule 14.5.4 (Financial products, services and investments) did not apply to buy-to-let property investment, where consumers were likely to know the merits of rental income and were able to regain their capital as well as lose it. They queried whether a ban on such ads appearing on radio would be justifiable and proportionate given that the rule had appeared in the Code only since the most recent edition came into force on 1 September 2010.
Assessment
1. & 2. Upheld
The ASA noted ABC's and the RACC's comments. We also noted, however, the risks involved in such an investment were not limited to tenants not paying their rent, for example, and, while we acknowledged the ad included conditional language, we considered the overall impression was such that it presented buy-to-let investment as an alternative, or a preferable option, to saving. We considered the ad misleadingly presented buy-to-let investment as low risk, in that it suggested it was an alternative, or a preferable option, to saving and did not make clear the potential risks associated with such an investment.
Nevertheless, we noted that broadcast ads for investments not regulated or permitted under FSMA may be broadcast on specialised financial channels, stations or programming only. We noted that buy-to-let property was not regulated under FSMA but considered the ad, which appeared on a non-specialist channel and emphasised an investment opportunity, promoted an investment. Because the ad promoted an investment not regulated by FSMA, we considered it therefore should not have been broadcast on a non-specialist channel, regardless of whether or not it made clear the potential risks involved in buy-to-let investment. We therefore concluded that the ad breached the Code.
The ad breached BCAP Code rules
3.1
3.1
Advertisements must not materially mislead or be likely to do so.
and
3.2
3.2
Advertisements must not mislead consumers by omitting material information. They must not mislead by hiding material information or presenting it in an unclear, unintelligible, ambiguous or untimely manner.
Material information is information that consumers need in context to make informed decisions about whether or how to buy a product or service. Whether the omission or presentation of material information is likely to mislead consumers depends on the context, the medium and, if the medium of the advertisement is constrained by time or space, the measures that the advertiser takes to make that information available to consumers by other means.
(Misleading advertising) and
14.5
14.5
These categories of advertisement may be broadcast on specialised financial channels, stations or programming only:
4 (Financial products, services and investments).
Action
The ad must not appear again in its current form. We told ABC to ensure their future broadcast advertising for investments not regulated or permitted under FSMA appeared on specialised financial channels, stations or programming only.
